H.J. Heinz Hungary

H.J.Heinz Hungary – CEO to drive radical business change

Background

H.J.Heinz, the food producer, had bought a Hungarian food processing business after the fall of communism in Hungary. They had run it for five years without being able to drive business change, or even get effective management of the organization, and had endured consistent heavy fiscal losses. The role I undertook was to gain effective management of the business, drive significant cultural and business change, and, most importantly, make the business profitable.

Strategy / Business Model

The goal of the shareholders (H.J.Heinz) was clear: they wanted profitability. The strategy for the business was highly complex for a number of reasons.

H.J.Heinz local management had not achieved effective management of the company having been blocked effectively by local management since acquisition. The business had a strong communist history and culture that had not been changed.

The business itself had three very different business parts: bulk canning of vegetables; branded baby food production and marketing; and Heinz branded production and marketing. Each had its own unique problems and drivers.

The first task was to establish effective management of the company, which, despite Heinz owning 99% of the shares, had not been achieved. This we agreed would require clearly demonstrating that Heinz was in charge and that change within the business was necessary.

Strategically we identified some overall key success drivers, and then built business models for each business unit.

Overall, we knew we had to reduce the number of staff from the 2,300 people employed, simplify the product range from the over 800 product derivatives we produced, and drive decision and responsibility down within the organization.

Within the overall business we identified a number of key business drivers:

Culture change, the importance of making profit.

Delegation of decision-making, too many decisions were made high in the organization far away from those who knew what was really going on.

Headcount reduction, both to reduce costs and to drive culture change.

For each separate business division we looked at their three key drivers:

1. Bulk canning of vegetables.

Requires taking vegetables as they are harvested and canning them as efficiently as possible. The business model is characterized by commodity pricing, limited harvest time, high fixed asset costs for canning machinery, high cost of the can (more than the contents).

Key Performance Drivers:

Manufacturing utilization, using the expensive machinery to produce as much product as possible within the harvest season.

Cost reduction, primarily in the cost of cans, the most expensive part of the end product.

2. Branded baby food production.

An area where we had 90% local market share but still lost money, the business is driven by parental confidence in the brand, market pricing, and reducing production costs.

Key Performance Drivers:

Improved marketing.

Improved product quality.

Increased pricing.

3. Heinz branded production and marketing.

In a marketing driven business, there was relatively low brand awareness of H.J.Heinz as a brand or its core brand value.

Key Performance Drivers:

Investment in brand building.

Range extension.

Implementation

After taking control of the company, I moved to ensure Heinz, as the primary shareholder, had effective managerial control. This necessitated removing several long serving members of the board, who had built up a powerful silo management system.

From there I moved to work directly with the team of senior managers – a team of around 30 key staff – and selling them a vision of what the company could be. I then delegated to them the power to make the required changes within their part of the business.

The business was then restructured into three separate business units, with their own budgets, targets and management, and through this structure we drove change.

Overall the business shed one third of the workforce, and was able to make 30% more product. Within the bulk canning business we:

Reduced cost and improved utilization of the machinery:

Moved from 20+ can sizes to two, both with the same diameter.

Took over $1,000,000 out of our can costs as larger volume runs are economic for can suppliers.

Focused canning on a smaller number of higher profit vegetables.

§Reduce headcount significantly.

Maximized expensive fixed asset usage (Canning machinery):

Worked plant 24 hours a day during harvest season.

Reduced number of can sizes, cutting the down time required to change over to different can size.

Worked with farmers to plant early crops under plastic, to lengthen the harvest season.

These changes took over $2,000,000 out of our cost base and allowed us to can more product, making this business profitable.

Within the baby food business, we had a very different branded business but one that was still, despite 90% local market share, losing money. Therefore, we undertook a very different strategy:

Kept local brand as it was well known with local varieties that matched Hungarian tastes, but repackaged these products and started a targeted marketing strategy using our worldwide experience with marketing to parents.

With help from other Heinz companies improved the quality to Heinz worldwide standard, which allowed us to supply other Heinz companies overseas.

These changes allowed us to raise prices significantly without loss of market share.

We also launched Heinz branded baby food as a premium product, and these changes to the baby food business made the business highly profitable.

H.J.Heinz branded product had a different set of challenges, and we clearly wanted to build the Heinz brand, which had low levels of awareness within Hungary:

Launched a range of Heinz branded products, based on our worldwide products.

Invested in building the Heinz brand, including TV advertising.

The Heinz brand was managed to break even, but high growth, and Heinz as a brand, is still strong within the Hungarian market.

Leadership / People

I met with the senior management group weekly for two years to sell the vision and support them. I also worked with them individually to mentor them, and many of them have gone on to senior roles within Heinz, and within other Hungarian companies. This was a very satisfying leadership role – helping people to change from a communist mindset with hierarchical management, into a free market way of thinking with a highly decentralized management structure.

Outcome

Heinz ultimately decided to withdraw from Central Europe manufacturing and we were able to sell both business’s profitably.

Testimonials

"Mark is that person whom years later, I respected more each day. His outlook, vision and attention to the end goal, made him an incredible COO. He used these approaches by outlining his expectations. Mark provided his management team with flexibility to perform and remain accountable to the decisions that led to a profitable, productive and high activity environment. He asked tough questions that stirred performance and kept all involved focused. That is why he is successful. September 23, 2009."